The unpredictable risks of a new Russian debt crisis

Such events in the past have infected the global system through “contagion,” or a financial domino effect that spreads as panicked investors yank money from foreign countries, upending their borrowing costs, stock markets and currency rates.

There’s some good news now. The global economy is significantly more stable today than it was in 1998, a tumultuous time when Russia’s default was sandwiched between the 1997 Asian financial crisis and a far more devastating 2001 debt default in Argentina. Back then, many emerging markets were plagued by fragile currency systems and high foreign debt loads in dollars — financial risks that many nations have since reduced.

Large Western money managers, pension funds and other institutions that hold significant amounts of Russian debt will feel the sting. But Russia is not even a top 10 global economy as measured by gross domestic product, and the pain is projected to be relatively contained. Russia owes foreign creditors $62.5 billion, including $21.5 billion that requires repayment in dollars and euros. That’s not much in the global scheme of things.

“Most likely a big chunk of it will have to be written off,” Elina Ribakova, deputy chief economist at the Institute of International Finance (IIF), an industry association, told me. “It will be unpleasant. And there are global pension funds, you know, in the United Kingdom, Europe and the U.S. that are involved in this. But we’re watching for signs on the market and we’re not seeing any big dislocations.”